Cleaning & Maintenance Management Online

Bidding & estimating: Do your homework

September 19, 2010

Bidding and estimating are the backbone of the building service contractor (BSC) business.

Much time, care and research should be put into this area of your business as it will forecast your future profits.

BSCs may seek quick solutions, such as plugging in any number to come up with a price, or “calculating” a price based on a similar building they have provided services to before.

Accurate calculations are essential; ask yourself these important questions:

  • Do you really know your numbers?
  • Are you going to profit from this account?
  • Are you out of industry range for the market in which you are trying to do business in?
  • Are you preparing for the future growth of your business?

Accounts are like fingerprints
When it comes to cleaning, no two accounts are alike. Attention to detail is needed to develop a successful and profitable bid.

A BSC should never get into the habit of bidding on a facility before it has been surveyed, or before speaking to the potential client.

Valuable information can be missed by neglecting this practice as potential clients can provide important information needed to correctly price a facility.

Set up a meeting with the clients. This is great opportunity for you as the BSC to ask questions that will help you win the contract.

It also shows potential clients that you are a professional, and if you don’t bid and estimate in a thorough manner, it could leave clients questioning how complete (or incomplete) your actual services will be.

Once you have met with potential clients and made your initial survey, the next step is to determine the amount of labor that is needed to complete the job.

The hourly method
To determine the amount of labor that is needed to complete the job, we’ll follow the hourly method, which is based on the estimated time required to perform the job.

Remember: There is a difference between total square footage and cleanable square footage, and the density of the facility can make a difference in cleanable time needed.

The first step in the hourly method is to find the production rate. The production rate, sometimes referred to as the cost of labor — or time it takes to service the facility for the length of the contract — is very important because it will usually be the largest expense in your bid.

Also, the production rate is one of the variables that can be controlled, making the job more profitable.

Follow this example for a yearly contract:

  1. Number of employees needed (5) x hours per day (9) = Labor hours per day (45)
  2. Labor hours per day (45) x days of service per year (260: Five days per week, for 52 weeks) = Labor hours per year (11,700)
  3. Labor hours per year (11,700) x your hourly pay rate ($13) = Labor cost ($152,100)

There are also hundreds of books and programs available to help BSCs with this step, and as you gain knowledge in this area, it is best to develop your own rate.

Different tools and methods can also help you complete some tasks faster, and thus will vary your production rate.

After you have found the production rate, the next step is to add payroll taxes and employee benefits, if any, to your labor costs.

Payroll overhead
Another expense that should be added into any bid is payroll overhead.

Payroll overhead is broken down into two categories: Direct expenses and indirect expenses.

Labor, supplies and equipment (vehicle, insurance and bonds, uniforms, etc.) are direct expenses and are the largest expense a company will incur.

If a BSC can control these areas it can be very profitable on every account they service.

Indirect expenses will vary, depending on how large your company is.

This expense should not change much between bids because this is the cost that will run your business and pay for office rent, repairs, sales staff, administration, etc.

BSCs need to include this figure when calculating bids for contracts. It is important to add this into every bid because clients should help pay for this expense.

Find your profit
Lastly, you must add in some profit, which will vary depending on what the BSC feels the market can handle.

Rusty Morris, former owner of Morris Janitorial Service, Richmond, VA, and present owner of Adkins Cleaning and Equipment Supply, Mechanicville, VA, said that many large BSCs generally add between 15 to 20 percent profit margin for large contracts.

Now that the numbers are calculated, BSCs should use a system, such as the square-footage method, to make sure the bid will be successful and is in an industry standard range.

Industry researcher Michael A. Berry, Ph.D. has said that to marginally maintain a building well it will cost about $125 per square foot and BSC figures should never be more than this amount.

Another way to double check your number is to determine the percentage of labor cost — which should be no more than 60 percent.

All methods work well when checking to determine a successful bid that you will profit from, but remember: No matter what method you use, there is no way to guarantee success in attaining every contract you bid on.

Expect that your competition will be familiar with the bidding practice, and several methods exist for determining a price for the cost of service.

It takes time and knowledge to perfect this skill.

So take the time and do your homework; business that you earn will always be a profit, and as time passes you will understand the numbers even more.

Al George owns Satisfactory Janitorial Service (SJS), a full service BSC business serving the Richmond, VA-area, and serves as a consultant, working with several businesses on bidding and estimating, writing requests for proposals (RFPs), developing marketing plans, and organizing operations. George also serves as a Cleaning Management Institute® instructor and has been involved in forming a bidding and estimating program for the organization.